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Recently, Fred's Inc. (FRED - Analyst Report) reported total sales and comparable sales for Apr 2013 that were higher than the year-ago period. Comparable store sales for the month climbed 1.2% compared with a decline of 0.3% in the year-ago month. Strong performance of the general merchandise and higher customer traffic led to the rise in same store sales during the month. Total sales for Apr 2013 increased 3% to $152.2 million compared with $147.6 million a year ago.

Although sales were partly hampered due to poor weather conditions and negative impact of the ongoing shift from branded to generic drugs, strong sales from the higher margin products following the company’ s investment in redesigning its assortments led to sales growth.

For the first three months of fiscal 2013, comparable store sales declined 1.3% compared to 0.4% decline in the same month a year ago. Fred’s’ total sales inched up to $501.4 million compared with $500.5 million for the same period last year.

Guidance

Fred’s asserted that it is well on track to achieve its growth targets in the first quarter of fiscal 2013. While announcing its March sales, the company has revealed that it expects tough retail conditions to continue across the markets in fiscal 2013. Comparable store sales, including one extra week, are expected to decrease by 1% to 3% in the first quarter due to weak sales in March. The company expects to record earnings within the range of 26 cents–30 cents per share in the quarter.

For fiscal 2013, Fred’s expects earnings to drop 77 cents–88 cents per share compared with fiscal 2012. However, excluding the impact of favorable income tax adjustment of 12 cents per share on 2012 results, earnings per share is expected to increase 12% to 28% in the year. The Zacks Consensus Estimate is pegged at 29 cents per share for the first quarter and 82 cents for fiscal 2013.

We, however, are not optimistic about the outlook provided by Fred’s. A tough retail environment and declining comparable store sales over the past several months remain a concern. Currently, Fred’s carries a Zacks Rank #5 (Strong Sell).

If you are looking for a diversified retailer, it might not be a bad idea to check out The TJX Company (TJX - Analyst Report), Costco Corporation (COST - Analyst Report) and Gap Inc. (GPS - Analyst Report). All of them carry a Zacks Rank #2 (Buy).

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